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Morning Gold Fix: June 30, 2010
Commentary courtesy of www.fmxconnect.com
Gold traded in a wide range on Tuesday as markets reacted to frightening news. Slowing growth from China shocked the market, driving oil prices more than $3 lower,dropping the Standard & Poor 500 ~30 handles and leaving gold and the dollar as the prime beneficiaries. More contagion fears from Europe and paltry consumer confidence reports didn’t help matters either. Gold sold as low as $1228 per 100 troy ounces on Tuesday before ultimately closing just over $1246, a $4.80 gain for the day.
Razzles
Yesterday’s activity was in our opinion a microcosm of the main drivers currently having a tug of war on the precious metals markets, i.e. deflation risk and European sovereign default risk. Forget inflation for now. Sure Gold is a hedge for inflation, but so is your house, or a Cadillac. Our own analysis almost never seeks to predict price movement, but instead seeks to understand if observed correlations between events and price movement are in fact causations. Yesterday was a great day to provide a clean data point in what we think are the main movers of gold currently. Our conclusion is simple and may have been obvious to readers, but we are ecstatic to have a better handle on the “whys” of market movement. As reactionary traders, it allows us to know better what to do in an event. Do we step in front of it, or do we go with a trend? Do we take profits or add to positions?
Our suspicions are simple: deflationary events drive gold lower, sovereign default risk drives it higher. The dollar, stock market, and bond market are secondary as proxys now (OMG, I can’t believe I said that… Gold is its own asset now!)
Here is what we saw yesterday.
Deflation: an unexpected revision to a leading indicator there helped give a sharp decline in Chinese equities which spilled over into Europe and the U.S. markets. Double dip… you betcha! Forget about China supporting the global markets. (which we think was silly anyway. Their stimulus investments were to generate more exports, the Chinese people aren’t becoming meaningful consumers anytime soon) Outcome: bearish for equities, commodities. At this point of the day, gold was priced like it was a commodity, and dragged down. CANDY
Sovereign Risk: Thursday, the ECB bank-lending program expires and the leaders were trying to reassure investors that it would not destabilize the European financial system. Outcome: bearish for equities, bearish for the Euro, and Gold goes higher. Now gold is being priced like a safe haven. It rallied along with the Dollar. GUM
A perfect day for scientists looking to filter out noise and get good correlations. Our speculative conclusion is this: deflation risk morphs into Sovereign risk at some point. The U.S. markets are pricing in deflation but not sovereign default, but the European markets equate deflation with potential default. The U.S. is just a really tall pygmy right now.
More importantly our reactionary trading conclusion is: If you are a Gold Bull, the next time Gold craps out, look around for deflationary news. If there is some, then ask yourself if it is time to buy. If there is none, then be careful. Something new is happening, be careful stepping in front of a freight train. Once you identify the driver, then make your decision.
On the upside: if no sovereign default related news is out and gold spikes, don’t get in its way. Something new is up. Figure out if this is a parabolic irrational spike to be sold into, or if it is something unknown and get out of the way.
The point is, we don’t add to positions unless we know the reason for the move.
Contango Watch: Metals spreads continue to come in as some community members remind us. But this is on the back of the bond market rally. We’d like to view this as a short squeeze coming, but it is not. It is just interest rate arbitrage for now.
Tuesday Options Recap
Today was an interesting day for volatility players. Futures came in lower and volatility was firm which is to be expected these days, especially with the put demand coming from the ETF business. What was interesting was the demand from seemingly out of nowhere for December 2010 through June 2012 volatility. Straddles and puts were bid and it would seem that a deal was done in the June 1200 puts. Market makers and dealers scrambled to cover the volatility risk and in doing so slowly drove volatility higher across the whole curve. About mid way through the rally in volatility, the futures turned and our and rallied. So what started as a bid in straddles and puts ended with a bid in straddles and calls. Moves like this are rare but becoming more frequent in this new environment. Implications are either producers are hedging further out on the curve, or a macro volatility player is upping the ante. Stay tuned.
August gold was up 0.8 to $1243.2 per 100 troy ounces as of 7:02 AM EST, this morning. The September U.S. dollar index was down .245 to 86.095. July platinum was down 7.1 to $1541.0 per 50 troy ounces. Silver was down 8.6 cents to 18.68.
-Elizabeth Thawne
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OFF--topic ...but i wanted to post this here....BP OIL SPILL >>
tens of millions could die::
http://pakalert.wordpress.com/2010/06/27/alert-obama-warns-world-leaders...
I call BS on that article.
It probably should be read 1228 per 1 (one) troy ounce not per 100 Troy ounces...
I believe the author means per ounce, but in the context of 100oz standard Comex contracts.
Please do not be startled by that repetitive beeping noise - that is just my tri-axle backing up to the loading dock.
Please sir, I'll take all the gold you've got, and let's keep it quiet, OK?
Verily, ye Gold Bitcheth.
As my great-great-great-great grandfather used to say.
The rising wedge will culminate by the end of the summer. Be very prepared. 1300 is in the cards first though.
Hedging our statements, are we now? Good. You're starting to use that noodle of yours.
...(sigh)...
GLD Options expired at 17:00 yesterday (Tuesday)...Monday & Tuesday's RIGGED DECLINE put many of these OUT of the money.
Lizzy, you forgot to posit this...
That was so last week.
Uh! No! That was YESTERDAY...Last week was Options Expiry at the CRIMEX...Understand?
Yeah, thanks.
But GLD was like a little green light amid a sea of red yesterday. Did you see how it actually gained a bit for the day whilst everything else crashed?
Well
-if monday looked a lot like last monday
-and tuesday looked like last tuesday,
I hope for the sake of my heart that today doesnt look like last wednesday. OK so far.
I'm more concerned that this Friday ends up in/near the same area as last Friday.
oh please. can we stop pretending this is a free market and start writing about the war that is going on -- the bullion banks versus any peasant bold enough to have the fucking nerve to want to preserve the value of their savings.
we're at the front lines as they try -- desperately it seems now -- to contain gold under 1262....
The latest attempt by The Evil Empire...$8 taken out in 10 minutes...only lasted two hours! This is quite good news.
We are rapidly approaching, and we may already be there, the point where The Evil Empire will no longer be able to manipulate the market down. All of their selling efforts are instantly bought into because they are recognized for what they are...manipulation.
laughing.... i follow three different boards, all of them are now clocking the JPM efforts and gauging buy points....
so yeah, i'd agree with you that the insane visibility of this manipulation -- utter corruption of our banks and regulators -- is going to blow up in their collective faces none too shortly. maybe today.
Excellent
And there you go, the $12 counter-punch by the Rebels was instantly met with another $9 slapdown by The Evil Empire. Gold now flat at $1241 a/o 11:05
Yep. If a clod like me can see it (and I have no PhD in econ so I'm not qualified), but the Fed cannot. Right. That proves that the supposition is a valid one.
What does it take for a guy to get the truth in this country?
laughing.... i follow three different boards, all of them are now clocking the JPM efforts and gauging buy points....
so yeah, i'd agree with you that the insane visibility of this manipulation -- utter corruption of our banks and regulators -- is going to blow up in their collective faces none too shortly. maybe today.
However, like a politician drunk on power, they will not just go quietly into the night.
I fully expect the largest intervention yet to come. Maybe later today or tomorrow. Larger than Monday. I'm gaining confidence that it won't work, but, we'll see.
Couple of things are occuring to me-
1) Again, EURUSD seems to correlate with gold. Indicates a strong consistent bid for gold in Euros which is keeping a floor.
2) The timing of this spike after the equity open indicates good bids for GLD. This may be new money from equities, looking for anything that didn't collapse yesterday, and hence not be so strong.
the only way to win the short term paper battle in gold is with physical silver. silver leverages gold mightly and paper silver will be leveraged mightly by a storm of physical deliveries by strong longs with patience and committment.
the algos and short term margined weak longs will all be flushed in the battle and only the comitted will have victory in my opinion.
Okay, this is way off topic, but I need help, and I am in a sort of a sticky situation. I have been dating this gal for a while, and my parents have been working me over to marry this girl. She's nice but not the greatest, but not the worst by any means. She has a handicap, where he left arm is cut off at the elbow. So, I am trying to figure out how exactly do I shop for a wedding ring?? My plan was to call Richard Childress Racing and see if they can sell me one of those shiny Chrome muffler clamps to give her. Would that be wrong?
If she can suck the chrome off the muffler clamp, she's a keeper!
As long as you get 50 ounces of gold bullion from her family as a dowry, who cares..
Tyler, 5000 billion refinancing for the banks in 2012! Looks like America is off easy on the total sum, but either way, the QE 3 and QE4 and QE5 and QE6 are now already spoken for! :)
http://blogs.tijd.be/.a/6a00d83451d54269e20134851c270a970c-pi
All of a sudden, the Turdman has become the Goldman (no pun intended).
However, I truly believe we have reached a critical point in the gold market. In the very short-term, 1250 is quite significant. A move and, preferably, a close back through 1250 may very well spell the end of Evil Empire domination of the gold market. They will always be able to influence but no longer dominate.
Through 1250, we should quickly move back to 1262-1265. Again, there is not, nor has there ever been, a chart formation called a "triple top". Instead, there is "three taps and you're out". 1265 will fail as resistance and we will move next to 1290, 1370 and 1450.
Wait, hold up, if we're at a critical point, as you say, why are your numbers looking so reasonable based on historical charts? Looks more like more of the same. Wouldn't a critical point look more like a before/after event?
Right now always looks so special but this is only rarely true.
I say this only because the last two major manipulations by the Evil Empire have not been able to have the desired impact. This is an extremely important development.
I believe we are seeing the beginning of a sea-change in the gold market. If I'm right, and I'm probably not, the Empire's influence in manipulating gold price is rapidly diminishing.
And again, I must emphasize that The Empire will not go quietly. I'm not trying to be ChartDaddy or Nostradumbass, I'm just openly stating my hunch.
Intraday, there is a pennant forming. My hunch is that, later today or tonight, The Empire will come in again with a massive bid bombardment in a final attempt to shake out longs by driving the price under the 50-day MA, somewhere down around 1220. If this happens...and if they fail and gold rises back up through 1250...the sea-change will have occured.
Oh, I think you're mostly right. Those who would like to see gold stay down are losing ground, but haven't they been losing ground for years? Didn't they fail to prevent $1000/oz?
Again, I agree with you but am also feeling jaded by even my own sense that this time gold will break out of this slow motion train wreck.
So close...
I hear ya, mac.
But, after the hammering back from $1000 in 3/08, it took 18 months to finally recapture the ground lost. Last week it only took a few days.
Their influence is waning as their motives become clear to nearly every market participant.
Lot of power in the charts. I can't imagine how fast Gold/Silver would climb if CRIMEX didn't interfere.
Gold should be trading a lot higher nowadays but JPMorgan and Goldman Sachs have purposely erroded the value of gold and silver. It's despicable. Gold and silver equals freedom, while fiat currency equals financial tyranny.
Oh well, eventually the government and corporations will not be able to sustain the oppression and policies like <a href="http://www.wallstreetoasis.com/blog/capitalism-investment-and-weed-you-g...">this</a> will force gold and silver to reach dramatic heights!
Like gold and silver is to banksters,
Cannabis is to big pharma.
Suppressed info about cannabis curing cancer in lab animals and human trials over the years:
http://www.youtube.com/watch?v=tTpSTqwruIk&feature=related
skip to 5:50 in video.
I concur with the European view that deflation does correspond with sovereign default. I also believe that deflation will correspond, ultimately, with massive Quantitative Easing and an abandonment of the temporarily politically expedient policy of "austerity."
The bottom line which will have to be faced is that THERE IS NO POLICY WHICH WILL RESULT IN THE DEBT OF EUROPE OR THE UNITED STATES BEING PAID DOWN WITH CURRENCY AT CURRENT VALUATIONS.
Therefore, either the debt is outright defaulted upon (though dragged out for years through pretend and extend) or an explicit long term commitment to QE and stimulus will result in the avoidance of default and will through currency devaluation ultimately result in the debt being paid and budgets balanced as tax revenues climb as currency values fall and economic activity picks up. Default is disorderly, chaotic and probably results in large scale populist revolution. QE and stimulus may allow for an orderly withdrawal and establishment of new Gold and Silver backed currencies and the time necessary to implement the type of systemic sea changes such as moving towards entirely renewable energy which tends towards zero in price over the long term and a currency based on energy efficiency and an upward standard of living for all human beings.
Whether it is default or long term QE and stimulus, to me, gold and silver have every good reason to be the go to protection for wealth in my opinion.
Duff,
"gold and silver have every good reason to be the go to protection for wealth in my opinion."
Your in very good company................
Dr.Faber, said there's nothing left to buy, except Gold.
When talkin' fiat, likens to the old song, " Nuthin from Nuthin is Nuthin".
Can I get an AMEN?.
This is so true, and exactly why I call "Bullshit" on all this "deflation" propaganda.
I have yet to read one intelligent (or even non-intelligent) analyst make a case for deflation who knows what the Hell he or she is talking about. The collapse of an asset bubble, or even declining levels of consumer debt, no NOT equate to "deflation"!
Certainly a lot of details like that to take into consideration. Thanks windows vps | cheap vps | cheap hosting | forex vps